The TGF-beta family of signaling molecules directs a wide variety of cellular and developmental processes by ultimately controlling gene expression. They signal through Smad proteins that function as transcription factors. In some instances, TGF-betas act in concentration gradients as morphogens to determine different cell fates. Dpp in Drosophila functions in a dorsal-to-ventral gradient in the blastoderm embryo, and specifies different fates by differentially regulating downstream target genes. For example. Race, a high-level target. is restricted to the dorsal-most cells. pannier, an intermediate-level target. is expressed in a broader domain, while tolloid. a low-level target is expressed in the broadest domain. How do these target genes interpret the Dpp gradient? Our results indicate that a simple mechanism involving a linear response to the Smad gradient does not apply, but rather, a combinatorial mechanism with additional factors is involved. One such factor, Brinker, functions as a repressor of some Dpp target genes. Interestingly, low levels of Dpp repress brinker expression limiting it to the ventral region. Thus. Dpp acts indirectly by repressing brinker, but also acts directly to activate some targets. What is the molecular mechanism by which the different target genes interpret Dpp and Brinker inputs? Are the regulatory sequences of all target genes similar with respect to these sites? If so, they would read the level of Smads and Brinker in each nucleus along the DV axis and respond accordingly. Or are they different from one another, each having either Smad or Brinker sites, and/or other factor binding sites? To address this question, we will compare the minimal Dpp-response elements of the representative target genes Race, pannier, and tolloid. In addition, we will manipulate the elements, as well as test synthetic promoters with Smad and/or Brinker sites. We will address the question of how Smads might outcompete Brinker, either by competition for DNA binding or by an anti-repression mechanism involving protein interactions. We will also investigate how Dpp signaling leads to repression of brinker, particularly how Smads interact with the putative repressor, Schnurri. We will identify additional cofactors involved in Dpp target gene regulation by genetic and molecular screens. Our specific aims focus on the different target gene promoters and how Brinker and Smads, and other cofactors, interact with them to control and fine-tune their transcriptional responses. These results will enhance our knowledge of the molecular basis of morphogen function, a key concept in developmental biology.